Depreciation

Depreciation is the loss in value of an asset. Cars depreciate in value due to age and normal wear and tear. But there is more to car depreciation than just aging.

Car depreciation is normally expressed as a percentage of a vehicle’s original MSRP and, on average, cars depreciate about 15% (the rate of depreciation) per year. The first year of depreciation is usually higher, because in addition to depreciation, the loss includes the taxes paid on the vehicle. This is fine for a rough estimate, but not all cars depreciate at the same rate.

As a rule, more reliable cars depreciate less due to the fact that they require fewer repairs and less maintenance. Manufacturers such as Honda and Toyota that have historically produced reliable vehicles that retain their value better compared to other manufacturers. Although American domestic manufacturers have closed the quality gap nicely with many of their models, that improvement is sometimes offset by poor sales, multiple recalls, large fleet sales (especially to car rental companies) and big rebates – all of which can cause vehicle values to drop.